Teva readies for biosimilars

Teva has marked biosimilars as a growth engine - and they will change the generics company.

There is a common denominator of biotechnology company Amgen Inc. (Nasdaq: AMGN), generics company Watson Pharmaceuticals Inc. (NYSE: WPI), medical equipment maker Baxter International Inc. (NYSE: BAX), and South Korean conglomerate Samsung Group Ltd: in the past few weeks, they have all taken measures to enter the biosimilars market, where they will compete against Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) and other companies.

Biosimilars are generic versions of biological drugs, in contrast to generic versions of chemical pharmaceuticals. Teva marked the biosimilars market as a growth engine several years ago. Following its acquisition of CoGenesys to establish a biosimilars platform, exactly three years ago, Teva announced a joint venture in the field with Switzerland’s Lonza Group AG (SWX: LONN) to develop, produce and market biosimilars. In its strategic plan announced two years ago, Teva set a biosimilars sales target of $830 million in 2015. Teva’s biosimilars sales in January-September 2011 totaled just $105 million less than 1% of its total sales - mostly in Europe. On the other hand, Teva’s biosimilars sales were 31% higher than in the corresponding period of 2010.

There has been an awakening in the biosimilars industry in the past few weeks. Biogen Idec Inc. (Nasdaq: BIIB) and Samsung Biologics Ltd. announced the establishment of a $300 million joint venture, which is planned to launch biosimilar products in 2016. Watson and Amgen also joined forced with the goal of reaching market in 2017. Momenta Pharmaceuticals Inc. (Nasdaq: MNTA) and Baxter have also joined forces to develop biosimilar products.

The new players are joining companies that are already active in the sector, or have announced plans to enter it.

A long and risky road

Meanwhile, it seems that Teva is unconcerned about the competing joint ventures, and it anticipates a market with few players. At last week’s JPMorgan Healthcare Conference, Teva CFO Eyal Desheh and Teva Americas president and CEO William Marth said that the way to develop biosimilars is long and risky. They believe that the biosimilars market will be a big one, but they noted the high entry barriers, including the complexity of developing and producing the drugs, and the high cost.

”The classic generics industry is not expected to enjoy strong growth rates in the near term, even as big pharma companies that produce brand drugs are also dealing with a wave of patent expirations. That is why everyone is looking for new growth engines, and looking at biosimilars as one of them,” said Leader Capital Markets analyst Sabina Podval.

Podval says that the biosimilars market is seen as having one of the markets with the greatest potential growth in the pharmaceuticals industry. Analysts project it will grow from the current few hundred million dollars to $2-2.5 billion within a few years. Patents for biological drugs with $54 billion in aggregate sales are due to expire by 2020.

However, the expected rapid growth is fraught with obstacles, in the form of regulations - or the lack thereof in this case. “The US has not yet formulated detailed regulations on this issue,” says Podval. “Europe is ahead on the issue, and there is a regulatory structure for some types of molecules.”

For example, analysts believe that regulations will require biosimilars to undergo clinical trials to obtain marketing approval, but the extent of these trials is still unclear, and whether there will be different requirements for different drugs.

First steps in the US market

Teva prefers not to wait for the regulations to catch up, and took its first steps in the US market two years ago, when it filed an application for a biosimilar with the FDA, under its Biologics License Application (BLA) protocol. The drug, XM02, increases the production of white blood cells for patients undergoing chemotherapy. XM02 is equivalent to Amgen’s Neupogen.

A few months ago, Teva settled a patent infringement case with Amgen over the drug, under which Teva can launch XM02 when Neupogen and Neulasta’s patents expire in November 2013.

The development and production of biosimilars are more complicated and expensive than for generics, and the approval process will likely be longer as well. These facts lead Podval to conclude that the biosimilars market will find itself in the space between brand drugs and generics. “Prices for biosimilars will presumably be closer to prices for brand drugs,” she says.

“Globes”: With all the new companies in the market, does Teva have an advantage?

Podval: “On the one hand, it has major advantages as a large, veteran company with a global production network. Teva is preparing for the day when there will be extensive use of biosimilars, and it has a cooperation agreement with Lonza, one of the largest producers of active pharmaceutical ingredients (APIs) for biologics.

”But beyond Teva’s R&D and production capabilities, the more important question is whether it is ready to enter this market. These drugs are more similar to world of innovative drugs, which requires a much larger sales and marketing network. It’s true that Teva has several innovative drugs, but until now it has acted more like a generics company. The question is how ready it is to make the transition.”

It just might be possible that the difficult transition is a natural part of the evolution of Teva, which has always been identified as a generics company. The company’s recent measures indicate movement in the direction of innovative drugs, and its incoming CEO Dr. Jeremy Levin comes from this business. Biosimilars, which more closely resemble brand drugs than generics, are part of this general trend.